Lords of Finance, by Liaquat Ahamed

When you read history, you tend to read about historical events, about numbers, dates, and data. But it was people who drove those events, people making decisions on the basis of uncertain information, unknown consequences and frequently in the ‚fog of war. The opening quotation in Ahamed’s book is from Benjamin Disraeli: Read no history – nothing but biography, for that is life without theory. This perfectly sets the tone for what for me is one of the best treatments of the Great Depression I’ve ever read.

This account differs from others because it is told largely from the vantage points of the four central bankers of the four largest economies of the day: Benjamin Strong at the New York Fed, Hjalmar Schacht of the German Reichbank, Montagu Norman of the Bank of England, and Emile Moreau of the Banque de France. From here we gain insight into the influence the BoE exerted on the NY Fed and the damage such closeness might have caused. We see the mistrust Moreau felt towards both the Anglo-Saxons and especially the Germans, and we sense the canniness, but also the cold aloofness, that made Schacht the right man to tackle the hyperinflation, but maybe the wrong one to work with in subsequent German episodes.

It also differs from other accounts in that the story is told as one that has its roots in the First World War. This is absolutely correct. WW1 saw the US become the world’s primary capital exporter, destabilised the gold standard, sent Germany into a hyperinflation, and saw the UK peg to gold at an overvalued parity and France at an undervalued one. It is only in the context of the ultimately vain struggle to recover from these events of the 1920s that the 1930s can be fully understood.

Finally, the book is also a wonderful counter to the popular US-centric understanding of the Great Depression which sees the 1929 crash as its spark, ‘policy mistakes’ as its fuel, and FDR as its saviour. In fact the catastrophe was truly global and the 1929 stock market crash was merely one of four financial earthquakes which shook the world economy.

“Part of the reason for the extent of the world economic collapse of 1929 to 1933 was that it was not just one crisis but … a sequence of crises, ricocheting from one side of the Atlantic to the other, each one feeding off the ones before, starting with the contraction in the German economy that began in 1928, the Great Crash on Wall Street in 1929, the serial bank panics that affected the United States from the end of 1930, and the unravelling of European finances in the summer of 1931 …”

Ahamed likens the collapse of Germany in 1928, which was precipitated by an outflow of the American capital on which it depended, to that of Mexico in 1994, which had become similarly dependent on international funds which it struggled to retain as American rates began to rise. The 1929 stock market crash was of a similar magnitude to the tech crash of 2000, the US banking collapses of 1931-33 to those of the financial crisis of 2007/08, and the collapse of the European financial system and the gold standard to the Asian/emerging market crisis of 1997/98. All in all it was:

‚…a crisis equivalent in scope to the combined effects and more of the 1994 Mexican peso crises, the 1997/98 Asian and Russian crises, the 2000 collapse in the stock market bubble, and the 2007/08 world financial crisis, all cascading upon one another in a single concentrated two-year period.”

I have to confess to not quite agreeing with some of Ahamed’s conclusions at the end of the book. The ‘policy mistake’ explanation for the severity of the depression sweeps too many issues under the carpet for me, and comes across as being biased emotively and by hindsight.